Four scenarios: how Brexit could happen
July 20, 2016 5:30 am
Different paths for the UK as it searches for a British model
©Jonathan McHugh
here will the road to Brexit end? Theresa May, Britain’s new prime minister, travels to Berlin
on Wednesday to meet Angela Merkel, Germany’s chancellor, in the first
leg of a political journey whose final destination remains uncertain.
There are plenty of package solutions,
ranging from Norway to Canada and even tiny Albania. The problem is that
senior Whitehall and Brussels officials are unconvinced any will work. Brexit is likely to end with a one-of-a-kind result.
FT Video
FT Brussels bureau chief Alex Barker explains the complex stages of the UK’s divorce from the EU
The search has begun for “the British model”. Here the
Financial Times explores four possible scenarios, viewed through the
perspective of the process rather than the final outcome. They represent
four very different paths: a hostile divorce, a clean break, an
amicable transition and a change of heart, in which Brexit is averted.
The British model is, to some extent, the sum of all the
cold calculations, surprise twists and political tantrums over that
journey. “The real question is not about the model in the end,” said
Pierre Vimont, a seasoned French diplomat who previously led the EU
diplomatic service. “It is how the negotiation will go and whether it
will turn nasty or not.”
Hostile divorce
The scenario
Talks collapse. Britain exits the EU with minimal transitional arrangements, losing most if not all preferential access to the EU single market. It sets out to become a low-tax, light-regulation magnet for global businesses — aggressively undercutting its EU neighbours.
Talks collapse. Britain exits the EU with minimal transitional arrangements, losing most if not all preferential access to the EU single market. It sets out to become a low-tax, light-regulation magnet for global businesses — aggressively undercutting its EU neighbours.
The assumptions
Amid tensions over UK procrastination or EU demands on Britain, London would be willing to threaten to go it alone as a low-tax global trading hub — and then see the threat through.
Amid tensions over UK procrastination or EU demands on Britain, London would be willing to threaten to go it alone as a low-tax global trading hub — and then see the threat through.
The verdict
Mrs May does not favour this course. But officials on both sides are fearful it could happen anyway. Derrick Wyatt QC, a scholar of EU law, told parliament of “huge risks” if politicians’ “blood is up” and unilateral measures are taken.
Mrs May does not favour this course. But officials on both sides are fearful it could happen anyway. Derrick Wyatt QC, a scholar of EU law, told parliament of “huge risks” if politicians’ “blood is up” and unilateral measures are taken.
But some advocate a fast break-up — especially if it lets
Britain rework its rules and tax system to attract global business and
new lines of business for the City. Crispin Blunt, chair of the Commons
foreign affairs committee, described falling back on to minimal World
Trade Organisation trading terms as “a perfectly sound bottom line for
the UK in the negotiations”.
David Davis,
Brexit minister, has confidently predicted Britain will be able to
establish a big trade area “10 times the size” of the EU in time for an
exit in 2019.
EU officials recognise that the threat of a British
light-touch business haven off the shores of continental Europe could
lead the bloc to make concessions on trade. But while the economics may
work for the City, the rest of the country’s economy could suffer
without a substantive trade deal with the UK’s biggest market.
Clean break
The scenario
Relations between Britain and the EU are strained but solid enough to arrange a tariff transition, agree trade terms and ratify the deal in the European Parliament and 38 national and regional assemblies.
Relations between Britain and the EU are strained but solid enough to arrange a tariff transition, agree trade terms and ratify the deal in the European Parliament and 38 national and regional assemblies.
The assumptions
This assumes that the price for a deep UK-EU association agreement is too high to meet — because of issues related to sovereignty or immigration — but that the political will remains to agree favourable trading arrangements.
This assumes that the price for a deep UK-EU association agreement is too high to meet — because of issues related to sovereignty or immigration — but that the political will remains to agree favourable trading arrangements.
British financial services would lose their EU “passport” to sell products and raise funds throughout the single market and only have l ited access in specific areas.
Rather than full single market access, Mr Davis has stressed
the need to keep “tariff free” trade, something he believes the EU will
offer. “They depend as much on us, more on us actually, than we do on
them,” he said at the weekend.
Political goodwill on both sides would be required to see
through a multiyear wait for ratification, and near continuous further
negotiations to cope with changes in UK or EU market rules.
The verdict
This scenario accommodates two political red lines: Britain’s need for immigration controls and the EU’s allegiance to free movement and the single market’s founding principles. But that political space comes at an economic cost.
This scenario accommodates two political red lines: Britain’s need for immigration controls and the EU’s allegiance to free movement and the single market’s founding principles. But that political space comes at an economic cost.
Focusing on a trade deal would curb how Britain can sell
itself in the world economy. If the UK shows too much competitive
independence from the EU — either in regulation or tax — it would risk
trade access terms and the ratification of any deal.
How the referendum vote has affected banks, technology companies and exporters
Companies would also face years of uncertainty while the
politics plays out. “If it takes a decade or more to sort this out and
get clarity on trade, some businesses will ask some serious questions,”
said Adam Marshall of the British Chambers of Commerce, adding that some
would see the upside of quickly cutting loose and “at least having
certainty”.
Transition arrangements are possible. EU officials have
looked at a model where the two sides mutually agree to not raise goods
tariffs while a trade deal is completed. Services would be more
vulnerable.
“My sense of the outcome, when you look at the politics and
all the variables, is a relatively modest trade deal,” said Pascal Lamy,
who has been both EU trade commissioner and head of the WTO.
“The big questions is whether they win [over] the British
people once they think about that and if it is genuinely in the
interests of the UK.”
Amicable transition
The scenario
Talks are difficult but amicable; disruption is minimised; changes are phased. Britain remains part of the EU single market, but on adjusted terms.
Talks are difficult but amicable; disruption is minimised; changes are phased. Britain remains part of the EU single market, but on adjusted terms.
The assumptions
Brexit Britain is satisfied with more control over some policy areas, such as agriculture. Crucially, the EU allows an “emergency brake” that could restrict the inflow of EU migrant workers in overloaded job sectors. In return, the UK forgoes almost all its influence on EU rules that it must follow. The financial services passport remains, but its value is eroded over time. Britain still contributes to the EU budget, but pays slightly less.
Brexit Britain is satisfied with more control over some policy areas, such as agriculture. Crucially, the EU allows an “emergency brake” that could restrict the inflow of EU migrant workers in overloaded job sectors. In return, the UK forgoes almost all its influence on EU rules that it must follow. The financial services passport remains, but its value is eroded over time. Britain still contributes to the EU budget, but pays slightly less.
The verdict
This is the preferred continuity option for big business and the City of London. There are two big potential flaws. The first concerns limitations to free movement. Britain must win concessions not only from pro-migration eastern Europe, but from France and the Netherlands, which do not want to set a precedent for anti-EU populists.
This is the preferred continuity option for big business and the City of London. There are two big potential flaws. The first concerns limitations to free movement. Britain must win concessions not only from pro-migration eastern Europe, but from France and the Netherlands, which do not want to set a precedent for anti-EU populists.
FT View
A British model for a post-referendum European future
A Brexit strategy must be based on consent, prosperity and security
The second issue is whether this would be enough for
Britain. Some EU officials think compromise is possible, but only on
carefully limited migration curbs. And the UK would be a rule-taker on
the single market, obliged to follow EU laws on everything from
financial services to digital policy. Mr Vimont reckons losing the right
to set rules would be an impossible sell for the British prime minister
— control of free movement is regained.
“It is the worst of both worlds,” he said. “Britain has been
a member state. Contrary to Norway or Switzerland, it has tasted the
other life. That makes a difference.”
Change of heart
The scenario
Britain invokes Article 50 of the EU treaties — known as the “exit clause” but pulls out of the formal process before it is complete, remaining a full member of the EU.
Britain invokes Article 50 of the EU treaties — known as the “exit clause” but pulls out of the formal process before it is complete, remaining a full member of the EU.
The assumptions
This scenario rests on a counter-revolution in British politics. After talks Mrs May or a future prime minister may fail to win voter approval for an exit deal either in another referendum or in a general election.
This scenario rests on a counter-revolution in British politics. After talks Mrs May or a future prime minister may fail to win voter approval for an exit deal either in another referendum or in a general election.
Alternatively, EU politics may dramatically change, making
the terms of EU membership, or some form of “associate membership”, look
more appealing to Britain. Economic hardship in the wake of the Brexit
vote would be an important factor.
The verdict
This is in the hands of the political gods. As one senior British official said: “If we stay in the EU it will be by mistake.” Mrs May has promised that “Brexit means Brexit” and it would be a brave politician to reverse course without a fresh voter mandate.
This is in the hands of the political gods. As one senior British official said: “If we stay in the EU it will be by mistake.” Mrs May has promised that “Brexit means Brexit” and it would be a brave politician to reverse course without a fresh voter mandate.
But this is a long, uncharted process. The option to remain
in the EU will probably remain well into late 2018 or 2019, even after
Article 50 is invoked. By that point, Europe will have been through
French, German, Dutch and Austrian elections that could upend politics
on the continent.
Sir Christopher Meyer, a former senior British diplomat,
said: “This is a case where we hang loose, we trust in God, and we keep
our powder dry, and we don’t take the decision until very near the
moment when we take the decision.”
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